Question 1

Landmark Corp.buys $300,000 of Schroeter Company's 8% five-year bonds payable at par value on September 1.Interest payments are made semiannually.Landmark plans to hold the bonds for the five year life.When the bonds mature,the journal entry to record the proceeds will be:

Accepted Answer

When the bonds mature, Landmark Corp. will receive the par value of the bonds, which is $300,000. The journal entry to record the proceeds will be a debit to Cash for $300,000, and a credit to Long-Term Investments Held-to-Maturity (HTM) for $300,000, since Landmark plans to hold the bonds until maturity. Choice C is the correct answer.

Question 2

On February 15,Jewel Company buys 7,000 shares of Marcelo Corp.common stock at $28.53 per share plus a brokerage fee of $400.The stock is classified as available-for-sale securities.On March 15,Marcelo declares a dividend of $1.15 per share payable to stockholders of record on April 15.Jewel received the dividend on April 15 and ultimately sells half of the Marcelo stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250.The journal entry to record the purchase on February 15 is:

Accepted Answer

The purchase price is calculated as (7,000 shares * $28.53) + $400 brokerage fee = $200,110. Since the stock is classified as available-for-sale, the correct entry is to debit Long-Term Investments-AFS and credit Cash for $200,110.

Question 3

On February 15,Jewel Company buys 7,000 shares of Marcelo Corp.common at $28.53 per share plus a brokerage fee of $400.The stock is classified as available-for-sale securities.On March 15,Marcelo Corp.declares a dividend of $1.15 per share payable to stockholders of record on April 15.Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp.stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250.The fair value of the remaining shares is $29.50 per share.The amount that Jewel Company should report in the equity section of its year-end December 31 balance sheet for its investment in Marcelo Corp.is:

Accepted Answer

The correct answer is D.The amount that Jewel Company should report in the equity section of its year-end December 31 balance sheet for its investment in Marcelo Corp. is $3,195. This is calculated as follows:Purchase price: 7,000 shares x $28.53 per share = $199,710Brokerage fee: $400Total cost: $200,110Dividend received: 7,000 shares x $1.15 per share = $8,050Proceeds from sale: 3,500 shares x $29.30 per share = $102,550Brokerage fee: $250Total proceeds: $102,300Gain on sale: $102,300 - $100,055 = $2,245Fair value of remaining shares: 3,500 shares x $29.50 per share = $103,250Total value of investment: $103,250 + $2,245 = $105,495Less: Cost of investment: $200,110Unrealized loss: $94,615Equity value: $105,495 - $94,615 = $3,195

Question 4

All of the following statements regarding accounting for trading securities under U.S.GAAP are true except:

Accepted Answer

The period-end fair value adjustment for trading securities does not include securities that have been sold; it only includes those still held at the end of the period.

Question 5

On May 1 of the current year,a company paid $200,000 cash to purchase 6%,10-year bonds with a par value of $200,000;interest is paid semiannually each May 1 and November 1.The company intends to hold these bonds until they mature.Prepare the journal entry to record the bond purchase.

Accepted Answer

The answer of On May 1 of the current year,a...

Question 6

All of the following statements regarding other comprehensive income are true except:

Accepted Answer

Other comprehensive income is actually included when calculating comprehensive income, hence statement B is false. Statements A, C, D, and E are all true. Other comprehensive income is a subset of total comprehensive income and includes items that are not reflected in net income, such as unrealized gains and losses on available-for-sale securities, foreign currency adjustments, and pension adjustments. Accumulated other comprehensive income is the cumulative impact of these items and is reported as an equity account on the balance sheet.

Question 7

On April 1 of the current year,a company paid $150,000 cash to purchase 7%,10-year bonds with a par value of $150,000;interest is paid semiannually each April 1 and October 1.The company intends to hold these bonds until they mature.Prepare the journal entries to record the bond purchase,the receipt of the first semiannual interest payment on October 1 of the current year,and the accrual of interest for the year-end December 31.

Accepted Answer

The answer of On April 1 of the current year,a...

Question 8

All of the following statements regarding accounting for trading securities under U.S.GAAP are true except:

Accepted Answer

An unrealized gain or loss is not recorded with an adjusting entry when the securities are sold, but rather realized at the time of sale.

Question 9

Landmark Corp.buys $300,000 of Schroeter Company's 8% five-year bonds payable at par value on September 1.Interest payments are made semiannually.Landmark plans to hold the bonds for the five year life.The journal entry to record the purchase should include:

Accepted Answer

Since Landmark Corp. plans to hold the bonds for the full five-year life, they would classify as held-to-maturity (HTM) investments. Therefore, the journal entry to record the purchase should include a debit to Long-Term Investments-HTM for the full purchase price of $300,000. There is no need to debit any short-term investments accounts, as the bonds are being held for the long term. Cash should be credited for the same amount.

Question 10

Landmark buys $300,000 of Schroeter Company's 8% five-year bonds payable at par value on September 1.Interest payments are made semiannually on March 1 and September 1.The journal entry Landmark should record to accrue interest earned at year-end December 31 is:

Accepted Answer

Landmark buys $300,000 of Schroeter Company's 8% five-year bonds payable at par value on September 1. Interest payments are made semiannually on March 1 and September 1.
For the year-end on December 31, only one interest payment has been made on September 1. Therefore, Landmark needs to accrue interest revenue for the three months of interest earned from September 1 to December 31.
The calculation of interest revenue for three months is:
$300,000 × 8% × 3/12 = $6,000
The journal entry to record the accrual of interest revenue is:
Debit Interest Receivable $6,000
Credit Interest Revenue $6,000
Therefore, the best choice is A, which correctly records the accrual of $6,000 interest revenue for the three months ending on December 31.

Question 11

The two business entities involved in an investment in securities with controlling influence,for which consolidated financial statements are prepared,are known as:

Accepted Answer

The parent company is the one that has controlling influence on the subsidiary, and the subsidiary is the investee. They are the two business entities involved in the investment where consolidated financial statements are prepared. Therefore, D (Parent and Subsidiary) is the correct choice.

Question 12

On February 15,Jewel Company buys 7,000 shares of Marcelo Corp.common at $28.53 per share plus a brokerage fee of $400.The stock is classified as available-for-sale securities.On March 15,Marcelo Corp.declares a dividend of $1.15 per share payable to stockholders of record on April 15.Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp.stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250.The fair value of the remaining 3,500 shares is $29.50 per share.The amount that Jewel Company should report in the asset section of its year-end December 31 balance sheet for its investment in Marcelo Corp.is:

Accepted Answer

The answer of On February 15,Jewel Company buys 7,000 shares...

Question 13

On February 15,Jewel Company buys 7,000 shares of Marcelo Corp.common stock at $28.53 per share plus a brokerage fee of $400.The stock is classified as available-for-sale securities.On March 15,Marcelo Corp.declares a dividend of $1.15 per share payable to stockholders of record on April 15.Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp.stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250.The journal entry to record the sale of the 3,500 shares of stock on November 17 is:

Accepted Answer

The cost of the 3,500 shares of Marcelo Corp. stock sold on November 17 is calculated as follows: 
- Total cost of 7,000 shares bought on February 15: 7,000 shares x $28.53 = $199,710 
- Add brokerage fee: $199,710 + $400 = $200,110 
- Cost per share: $200,110 / 7,000 shares = $28.59 
- Cost of 3,500 shares sold: 3,500 shares x $28.59 = $100,065

The proceeds from the sale of the 3,500 shares of Marcelo Corp. stock on November 17 is calculated as follows: 
- 3,500 shares x $29.30 = $102,550 
- Less brokerage fee: $102,550 - $250 = $102,300

To record the sale of the 3,500 shares of stock on November 17, the journal entry would be: 
- Debit Cash for $102,300 
- Credit Long-Term Investments-AFS for $100,055 ($100,065 cost - $1,010 amortization of unrealized gain) 
- Credit Gain on Sale of Long-Term Investments for $2,245 ($102,300 - $100,055 - $400 brokerage fee)

Therefore, the correct choice is D.

Question 14

On February 15,Jewel Company buys 7,000 shares of Marcelo Corp.common stock at $28.53 per share plus a brokerage fee of $400.The stock is classified as available-for-sale securities.On March 15,Marcelo Corp.declares a dividend of $1.15 per share payable to stockholders of record on April 15.Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp.stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250.The journal entry to record the dividend on April 15 is:

Accepted Answer

The dividend received on April 15 is recorded by debiting Cash for $8,050 ($1.15 x 7,000 shares) and crediting Dividend Revenue for the same amount. Therefore, the correct journal entry is:
Debit Cash $8,050; credit Dividend Revenue $8,050.

Question 15

Landmark Corp.buys $300,000 of Schroeter Company's 8% five-year bonds at par value on September 1.Interest payments are made semiannually.All of the following regarding accounting for the securities are true except:

Accepted Answer

The semiannual interest payment amount for the bond is $12,000, not $24,000. Therefore, choice D is incorrect. The rest of the choices are correct. The debt securities should be recorded at the cost of $300,000 and will have a maturity value of $300,000. Interest revenue should be credited when an interest payment is received, and the semiannual interest payment amount is $12,000.

Question 16

All of the following statements regarding accounting for influential securities under U.S.GAAP and IFRS are true except:

Accepted Answer

Under the equity method, the investment account equals the acquisition cost plus the share of investee income minus the share of investee dividends, not plus the share of investee dividends.

Question 17

Financial statements that show the financial position,results of operations,and cash flows of all entities under the parent company's control,including all subsidiaries are known as:

Accepted Answer

Consolidated financial statements show the financial position, results of operations, and cash flows of all entities under the parent company's control, including all subsidiaries. Combined financial statements combine the financial information of two or more companies, but may not necessarily include all subsidiaries of a parent company. Equity financial statements and statement of owner's equity focus solely on the equity section of the balance sheet. Investor financial statements do not exist as a standard financial statement.

Question 18

On November 12,Higgins,Inc. ,a U.S.Company,sold merchandise on credit to Kagome of Japan at a price of 1,500,000 yen.The exchange rate was $0.00837 on the date of sale.On December 31,when Higgins prepared its financial statements,the exchange rate was $0.00843.Kagome paid in full on January 12,when the exchange rate was $0.00861.On January 12,Higgins should prepare the following journal entry:

Accepted Answer

To record the payment received from Kagome on January 12, Higgins should debit Cash for the amount received, which is $12,915 (1,500,000 yen x $0.00861). However, the amount recorded in Accounts Receivable at the time of the sale was based on the exchange rate on November 12, which was $0.00837. Therefore, the credit to Accounts Receivable-Kagome should be based on that rate, which gives us a credit of $12,645 (1,500,000 yen x $0.00837). The difference between the two rates results in a Foreign Exchange Gain of $270 ([$12,915 - $12,555] - [$12,645 x ($0.00843 - $0.00837)]). Therefore, Higgins should prepare the journal entry as follows: 
Debit Cash $12,915; credit Accounts Receivable-Kagome $12,645; credit Foreign Exchange Gain $270.

Question 19

On February 15,Jewel Company buys 7,000 shares of Marcelo Corp.common stock at $28.53 per share plus a brokerage fee of $400.The stock is classified as available-for-sale securities.On March 15,Marcelo Corp.declares a dividend of $1.15 per share payable to stockholders of record on April 15.Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp.stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250.The fair value of the remaining shares is $29.50 per share.The amount that Jewel Company should report on its year-end December 31 income statement related to the investment in Marcelo Corp.is:

Accepted Answer

The correct answer is A because the amount that Jewel Company should report on its year-end December 31 income statement related to the investment in Marcelo Corp. is $10,295. This is calculated as follows:Gain on sale of stock = (Selling price per share - Purchase price per share) x Number of shares sold= ($29.30 - $28.53) x 3,500 shares= $0.77 x 3,500 shares= $2,695Dividend income = Dividend per share x Number of shares held= $1.15 x 7,000 shares= $8,050Unrealized gain on remaining shares = (Fair value per share - Purchase price per share) x Number of shares held= ($29.50 - $28.53) x 3,500 shares= $0.97 x 3,500 shares= $3,395Total income = Gain on sale of stock + Dividend income + Unrealized gain on remaining shares= $2,695 + $8,050 + $3,395= $14,140Less: Brokerage fees= $400 + $250= $650Net income = $14,140 - $650= $13,490

Question 20

All of the following statements regarding accounting for noninfluential securities under U.S.GAAP and IFRS are true except:

Accepted Answer

The answer of All of the following statements regarding accounting...

Quiz 15: Investments and International Operations

Landmark Corp.buys $300,000 of Schroeter Company's 8% five-year bonds payable at par value on September 1.Interest payments are made semiannually.Landmark plans to hold the bonds for the five year life.When the bonds mature,the journal entry to record the proceeds will be:

All of the following statements regarding accounting for trading securities under U.S.GAAP are true except:

On May 1 of the current year,a company paid $200,000 cash to purchase 6%,10-year bonds with a par value of $200,000;interest is paid semiannually each May 1 and November 1.The company intends to hold these bonds until they mature.Prepare the journal entry to record the bond purchase.

All of the following statements regarding other comprehensive income are true except:

All of the following statements regarding accounting for trading securities under U.S.GAAP are true except:

Landmark Corp.buys $300,000 of Schroeter Company's 8% five-year bonds payable at par value on September 1.Interest payments are made semiannually.Landmark plans to hold the bonds for the five year life.The journal entry to record the purchase should include:

Landmark buys $300,000 of Schroeter Company's 8% five-year bonds payable at par value on September 1.Interest payments are made semiannually on March 1 and September 1.The journal entry Landmark should record to accrue interest earned at year-end December 31 is:

The two business entities involved in an investment in securities with controlling influence,for which consolidated financial statements are prepared,are known as:

Landmark Corp.buys $300,000 of Schroeter Company's 8% five-year bonds at par value on September 1.Interest payments are made semiannually.All of the following regarding accounting for the securities are true except:

All of the following statements regarding accounting for influential securities under U.S.GAAP and IFRS are true except:

Financial statements that show the financial position,results of operations,and cash flows of all entities under the parent company's control,including all subsidiaries are known as:

All of the following statements regarding accounting for noninfluential securities under U.S.GAAP and IFRS are true except: